Student Answers gsenviro Student You can start with defining what managerial economics is and what is required for decision making in a business environment. Then you can explain the importance of managerial economics in business decision making, using some examples or short case study.
Decision making is crucial for running a business enterprise which faces a large number of problems requiring decisions. Which product to be produced, what price to be charged, what quantity of the product to be produced, what and how much advertisement expenditure to be made to promote the sales, how much investment expenditure to be incurred are some of the problems which require decisions to be made by managers.
The five steps involved in managerial decision making process are explained below: The first step in the decision making process is to establish the objective of the business enterprise. The important objective of a private business enterprise is to maximise profits. However, a business firm may have some other objectives such as maximisation of sales or growth of the firm.
But the objective of a public enterprise is normally not of maximisation of profits but to follow benefit-cost criterion. According to this criterion, a public enterprise should evaluate all social costs and benefits when making a decision whether to build an airport, a power plant, a steel plant, etc.
The second step in decision making process is one of defining or identifying the problem.
Defining the nature of the problem is important because decision making is after all meant for solution of the problem. For instance, a cotton textile firm may find that its profits are declining. It needs to be investigated what are the causes of the problem of decreasing profits. Whether it is the wrong pricing policy, bad labour-management relations or the use of outdated technology which is causing the problem of declining profits.
Once the source or reason for falling profits has been found, the problem has been identified and defined. Identifying Possible Alternative Solutions i. Alternative Courses of Action: Once the problem has been identified, the next step is to find out alternative solutions to the problem.
This will require considering the variables that have an impact on the problem. In this way, relationship among the variables and with the problems has to be established.
In regard to this, various hypotheses can be developed which will become alternative courses for the solution of the problem. For example, in case of the problem mentioned above, if it is identified that the problem of declining profits is due to be use of technologically inefficient and outdated machinery in production.
The two possible solutions of the problem are:Managerial economics serves several purposes in business decision-making. To start with, managerial economics provides a logical and experiential framework for analyzing the question.
To the. Managerial Economics and Theory of Decision Making: The theory of decision making is a relatively new subject that has a significance for managerial economics. In the entire process of management and in each of the management activities such as planning, organising, leading and controlling, decision making is always essential.
“Managerial economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions”. Managerial economics studies the application of the principles, techniques and concepts of economics to managerial problems of business and industrial enterprises.
Business Economics and Managerial Decision Making isan essential introduction to business economics. A core textbookfor students with a grounding in introductory microeconomics, itexamines the nature and structure of the firm, and explores theeconomic principles underlying major business leslutinsduphoenix.com: Trefor Jones.
Decision Making; Decision making is termed as the process of finding or identifying any certain problem/opportunity in order to resolve them professionally through legal and logical ways. Besides, it can be said that making a decision is the preparation for practical actions.
Concept of Managerial Decision Making in Management. Managerial economics is a #management science that gives you more idea about the economic aspects of a market and how they affect your decision making. This is very important because economic profits play a crucial role in a market based economy., While above normal profits are indicators of expansion and growth, below normal profits cautions.